New Jersey approves online gambling: 3 stocks to benefit

With another state allowing Internet gaming, these companies could get a significant boost.

By TheStreet Staff Feb 27, 2013 1:10PM

thestreet logoBy Chris Ciaccia

New Jersey became the second state to approve online gambling, with Gov. Chris Christie approving a bill this week. Companies like Zynga (ZNGA), Caesars Entertainment (CZR) and Boyd Gaming (BYD) may stand to benefit.

In a statement, Christie said the decision was critical, and "one that I did not make lightly." The Governor had previously vetoed a bill on online gambling, but signaled that he would approve it with some recommended changes. Christie asked for a time limit, a tax-rate increase, and additional money set aside for compulsive-gambling programs.

Last week, Nevada became the first state in the nation to approve online gambling (read on TheStreet), as Gov. Brian Sandoval signed legislation after the Nevada State Senate and Assembly approved the bill.

Zynga may stand to benefit, due in large part to its popular Texas Hold 'Em app, Zynga Poker. Last June, Zynga Poker had 30 million monthly average users, according to Mike Gupta, the company's then treasurer and vice president of finance. Gupta also told TheStreet that online gambling was on the company's radar. "It is something we're exploring," he said. "We think it's an interesting adjacency to what we do in our core business."

Ball on Roulette wheel closeup Adam Gault Digital Vision Getty ImagesTraditional casino operators will stand to benefit, some more so than others, says Credit Suisse analyst Joel Simkins. Simkins cited Boyd Gaming and Caesar's Entertainment as two names that would be beneficiaries. "Depending on how its sliced, online gaming in NJ could be a $250m-$500m market and while we believe both companies have the capabilities (in-house or through partnerships) to implement platforms quickly, competition could be high, with margins at more modest levels initially," Simkins wrote in a Feb. 7 research note.

Sterne Agee's David Bain also cited Boyd Gaming as a beneficiary, due in large part to its presence in Atlantic City. Boyd, along with MGM Resorts (MGM), owns Borgata Hotel Casino & Spa. The analyst, who rates Boyd shares "neutral," did temper optimism, however, on the gaming space as a whole.

Caesar's (formerly Harrah's Entertainment), has exceptionally strong brands, including the World Series of Poker, which would play well with social gaming.

Hedge fund manager John Paulson cited Caesar's potential for online gambling at the Ira Sohn investment conference last year.

Shares of Zynga were higher in early Wednesday trading, up 2.98% to $3.46, while shares of Boyd and Caesar's jumped 6.46% and 4.37% to $6.92 and $12.66, respectively.

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